Lowe’s Cos. posted weaker-than-expected quarterly results but kept its forecast for same-store sales growth this year, assuring investors it will benefit once U.S. consumer demand picks up.
Lowe’s, the second-largest home improvement chain behind Home Depot, said it still expects sales at stores open at least a year to rise about 2 percent for the fiscal year, which some analysts viewed positively given soft consumer sentiment.Chief Executive Robert Niblock described the consumer mind-set as fragile and said it was still not clear when demand would pick up.
“We see the economy bouncing along the bottom in 2010, resulting in a transition year for our industry,” Niblock said on a conference call with analysts. “We don’t expect strong industry growth until we experience consistent improvements in the labor and housing markets, which likely will not occur until 2011.”
The cautious comments echoed warnings last week from major retailers J.C. Penney, Kohl’s Corp. and Nordstrom Inc. about weak demand in the second half of the year.
Fresh data Monday showed U.S. home builder sentiment fell for a third straight month in August to its lowest level in nearly 1-1/2 years, pointing to a weak housing market as the recovery loses steam.
JPMorgan analyst Christopher Horvers said Lowe’s should be able to meet its same-store sales goal as homeowners resume long-delayed projects.
A return to big-ticket projects would accelerate sales growth beyond that pace, he said in a research note. Horvers also credited Lowe’s for clearing inventory in the quarter, boosting gross margin slightly.
The company said overall inventories were in good shape and that it does not expect any major markdowns on appliances.
Shares of Lowe’s rose 2 percent Monday after a month of lagging the wider market. Home Depot, which reports results Tuesday, gained 1.1 percent.
Lowe’s same-store sales in California rose in the second quarter, but were weaker than first-quarter levels.
Analysts pointed out that Wall Street had looked for even weaker results.
“We expect the ‘not so bad’ second-quarter results that Lowe’s reported (Monday) to alleviate growing market concerns of a significant deterioration in trends at the chain over the past few months,” Oppenheimer analyst Brian Nagel said.
Net income rose to $832 million, or 58 cents a share, in the second quarter ended July 30, from $759 million, or 51 cents a share, a year earlier.
Analysts on average were expecting 59 cents a share, according to Thomson Reuters I/B/E/S.
Sales at Lowe’s lost some momentum with the expiration of a U.S. homebuyer tax credit and cash for appliances programs. Both had helped results significantly in the first quarter.
Sales rose 3.8 percent to $14.36 billion, but missed Wall Street’s average estimate of $14.52 billion. Sales at stores open at least a year rose 1.6 percent.
Lowe’s forecast current-quarter profit of 28 to 32 cents a share, while analysts were expecting 31 cents. The company said it expected a sales increase of 3 to 5 percent for the period.
